Energy Prospectus

E&P Balance Sheets are Work in Progress
Despite efforts to protect balance sheets, debt metrics are likely to exceed covenants for 40% of our small and mid-cap oil group by YE21, if
not sooner. Banks could relax covenants, as they have in the past, although 40% of this group had the borrowing base on their bank lines cut
during a spring redetermination. In addition, 40% of our broader oil universe will be more than 50% drawn on credit lines by YE23, including
seven companies that do not appear to have sufficient funds to address upcoming debt maturities. Despite the turmoil, industry leader EOG
successfully raised $1.5B with a senior notes offering in mid-April while CDEV, QEP, and SM announced debt repurchases or exchanges this
month. All three of the latter stocks outperformed following the announcements.

Favor Financially Sound, Low Cost E&Ps
We continue to favor companies with strong financial positions, low cash costs, and low costs of supply. Our quantitative analysis tool suggests
FANG, NBL, PE, WPX, and XEC are currently the most attractive in our bellwether group and BCEI, PDCE, and QEP in our mid-cap space.
BSM and VNOM screen best among our Minerals group.
After updating our models, we are raising our target prices on APA, CPE, CDEV, CHAP, XEC, CXO, DVN, FANG, FLMN, KRP, LPI, MTDR, NBL, OAS, PDCE, PXD, QEP, SM, SNDE, TPL, VNOM, and WPX, and lowering our targets on BCEI, CLR, EOG, NOG, PE, and WTI.

Here are the oil & gas prices that Stifel is now using for their stock price targets.
Oil ------------- Natural Gas
2020
Q2 $26.06 ---- $1.77
Q3 $33.87 ---- $2.00
Q4 $35.03 ---- $2.51
2021 $36.78 --- $2.74 < This is why I've added two more "gassers" to the Sweet 16. I think we see $3.00 gas by Christmas.

Stifel's updated price targets for the companies that I follow.

These are listed as their "Bellweather" picks. They are all in our Sweet 16
CLR $22.00
CXO $74.00
EOG $66.00
FANG: $95.00
PE: $15.00
PXD: $130.00
XEC: $47.00

Others
Mid-Caps
CPE rated a BUY with price target of $1.10
DNR rated a SELL with a price target of $0.30 (because DNR needs 2021 oil price of at least $40/bbl to survive)
MTDR rated a HOLD with a price target of $8.00
OAS rated a BUY with a price target of $1.30
PDCE rated a BUY with a price target of $22.00 (we published an update profile on it yesterday)
SM rated a HOLD with a price target of $4.00

Small-Caps
CHAP rated a BUY with a price target of $1.30
SNDE rated a BUY with a price target of $3.50

<<DNR rated a SELL with a price target of $0.30 (because DNR needs 2021 oil price of at least $40/bbl to survive)>>

Does Stifel disagree with your prediction that the price of crude will be over $40 by 2021?

All of the Wall Street analysts must use their firm's official commodity price forecast. That doesn't mean that their energy sector analysts agree or disagree with it. Some firms just use the NYMEX Strip, which is not a forecast.
At the bottom of each forecast model I put several recent price targets from other firms. The primary reason for the wide range of price targets is because the analysts are using different commodity price assumptions.

DNR has a lot of oil hedged this year which will keep them afloat. Their CO2 Floods have huge recoverable reserves but they also have high operating expenses when you include the cost of the CO2 and the need to strip it from the produced volumes and reinject it.

Learn to use the tools on the EPG website:
> Download the DNR forecast to Excel on your computer.
> For 2021 change the oil price from $50 to $40 and see the impact that it has on their operating cash flow.
> Then change the oil price to what Stifel analysts are required to use for 2021 and you will understand why they rate DNR a SELL.
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Oil Supply & Demand have moved much faster back to balance than I expected to happen in May. By the end of June, demand may exceed supply. If so, Stifel will raise their oil price forecast.

From Bloomberg as of 5/27/2020 these are the "Consensus" oil and natural gas prices being used by the Wall Street Gang

WTI Oil ---------- HH Natural Gas
2020
Q2 $27.38 ------ $1.95
Q3 $31.85 ------ $2.17
Q4 $38.18 ------ $2.43
2021
Q1 $41.34 ------ $2.54
Q2 $43.90 ------ $2.34
Q3 $46.05 ------ $2.41
Q4 $48.54 ------ $2.53

MY TAKE: The "Right Price" for oil is much higher IMO because U.S. oil production peaked in November, 2019 when we had WTI over $60/bbl. The "cheap oil" has been harvested and BTW all this "helicopter money" the FED has been printing will cause inflation when we get anywhere close to normal again. Inflation = higher commodity prices for everything